Hedge Fund Compensation Report 2007

The 2007 Hedge Fund Jobs Digest Compensation Survey was designed to capture valuable compensation information directly from those involved in the hedge fund industry. We surveyed 232 industry players from more than 200 hedge fund firms, both large and small, such as: Credit Suisse, Vegasoul, Deutsche Bank, Nedgroup, BlueBay and Goldman Sachs. For several months our members could access our Compensation Comparison tool – giving them the opportunity to analyze the salary data in an ad hoc manner. Here we summarize the results of the survey to include some of the earnings data and much more. The results tell an interesting story.

We found that 76 percent of respondents are dissatisfied with their compensation package and there is little loyalty to the firm. Most of the survey respondents are in senior roles, have over 10 years of work experience but less than 2 years with their current firms. Is it the fact that intelligent, well educated, hard charging “type A” personalities are never satisfied? Or could it be that the hedge fund industry really does have a problem simply due to the high demand for talent?

Although the purpose of the survey was not to find causes for high turnover, the fact that such an overwhelming percentage of respondents feel compensation needs to be improved might be what is sustaining the revolving door. Given generous vacation policies, high average hedge fund compensation ($250,000) and the fact that 76 percent expect to see raises this year, the dissatisfaction may be a function of expectations and perceived opportunity cost. There is still plenty of income opportunity out there; top hedge fund performers earn huge bonuses and make more than $1,000,000 a year.

At the analyst level, there is significant difference in cash compensation in the US. On average, analysts on the West coast are earning nearly 30 percent more than their brethren on the East coast and 60 percent more than those in the Central states.

It seems people with hedge fund jobs in London are still in demand. Better compensation packages and extra vacation time contributes to higher achievement of a good work and personal life balance.

MBA’s are realizing the return on their investment by earning 33 percent more in cash compensation – most of which comes in the form of bonus. Despite this additional compensation, hedge fund MBA respondents are less satisfied with their compensation package than most. Could it be higher earning expectations and a lack of an equity stake that is driving this discontent?

The firms included in the survey are performing well overall. Most are using a multi-strategy investment approach and over 50 percent said their fund is achieving good to excellent performance.

Over the past few years, the popularity of hedge funds has spawned many new firms. A myriad of small funds are battling it out for survival while the larger, more established funds continue to absorb the majority of new money. As over 71 percent of respondents work for groups with 10 professionals or less, the data better represents the small fund scenario, although the inclusion of large funds does skew averages somewhat. The larger firms have a big advantage in the down years. Their stability based on management fees allows them to pay aggressively at all levels in the firm while they wait out the low periods. The small firms depend heavily on the fund performance to pay bonuses at a level that keeps the attention of top team members.